Consumer facing stocks are among the top performers on the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index today on hopes that the tax cuts promised by the re-elected Coalition government would give the sector a much needed boost.
The JB Hi-Fi Limited (ASX: JBH) share price surged 5.2% to $26.90 in after lunch trade, while the Super Retail Group Ltd (ASX: SUL) share price jumped 4.5% to $8.54, Harvey Norman Holdings Limited (ASX: HVN) share price increased 3.8% to $3.98 and Woolworths Group Ltd (ASX: WOW) share price added 1.6% to $34.74.
While federal Labor had also promised tax cuts for middle to lower income households, it would have increased taxes for wealthier Australians and removed tax benefits for many investors.
Why Liberals are better for retail
Having a Coalition government is clearly more stimulatory for our economy and that's probably explains in the simplest terms Labor's shock defeat at the polls on the weekend.
The bigger tax refunds will come as soon as most taxpayers file their FY19 tax returns and it's estimated to provide a stunning $8 billion boost to household's coffers, according to the Australian Financial Review.
But there's a double tailwind to retailers from the election. Federal Labor under Bill Shorten would have lifted the minimum wage and retail outlets would be hit the hardest along with hospitality businesses.
A Shorten government would have lifted holiday penalty rates and increased the minimum wage by pegging it to a "living wage", prompting Wesfarmers Ltd's (ASX: WES) chairman Michael Chaney to warn of definite job losses.
Tax cuts to lift consumer spending
Citigroup estimated that the tax relief would boost retail spending by 1% to 1.5% in the September quarter, reported the AFR.
The Liberal-National Coalition's will see middle to lower income taxpayers get up to $1,080 a year, and this doubles for couples. It's estimated that nearly five million Aussies will qualify for the full tax rebate.
The Morrison government doesn't want to stop there. It also wants to cut taxes for higher income earners and flatten the tax regime by removing one of the tax brackets, although that won't happen for some years – and provided nothing untoward happens to the Australian economy.
Getting the budget back into surplus is a bigger priority and the Coalition is promising that will happen by this year. The strong iron ore price, which is climbing towards US100 a tonne will go a long way to helping the federal government reach this goal and ScoMo will be keeping his fingers crossed that commodity prices can hold on to recent gains.
Iron ore is our biggest export and the price of the steel making ingredient has surged 44% over the past year to US$96.34 a tonne.
But it isn't only retailers and iron ore miners that have a brighter outlook. The experts at the Motley Fool also believe this other sector will run hot in 2019, if not beyond.
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